Perpetual is building up an 8% cash weighting in its mainstream US portfolios amid a cautious view o...
Perpetual is building up an 8% cash weighting in its mainstream US portfolios amid a cautious view on the North American market, writes Leo Bland.
The group has increased its cash weightings from around 2% a month ago in Perpetual American Growth, which is run by Ian Brady, and Perpetual Offshore American Growth, which is managed by Phil Chappell, off the same model as the unit trust.
Chappell said Perpetual is expecting a difficult period for US equity markets over the next few months as it thinks the Federal Reserve is likely to raise interest rates further to cool inflationary pressures. The increased cash weightings have been generated by the fund selling out of stocks including General Electric and AT&T, with the proceeds not being reinvested.
Chappell said: "If we were looking to make a statement about being bearish on the US market the cash weighting would go up to 14% or 15%. We are more cautious than bearish. People are obsessed with the macro-economic environment at the moment as they want to see a soft landing. Our view is that there are further interest rate rises to come as the inflation figures do not look good because of oil price rises and wage growth. There is a risk of profits disappointing in this scenario."
Both funds have benefited from an overweight position in the energy sector throughout this year on the back of an increase in activity for energy companies following the rises in oil and natural gas prices. Perpetual's US portfolios have also benefited from their underweight position in the tech, media and telecoms sectors, with the funds having a 30% weighting at the peak of the tech bull run earlier this year when such stocks made up 35% of the market. Its position has been trimmed back to 27% in these new economy stocks compared to the current market weighting of 30%.
Chappell said: "I think many technology stocks are still too high, especially if interest rates go up. We have holdings in stocks such as Microsoft and Cisco but we are slightly underweight these companies. Our concern is what would happen to the sector if one of these stocks disappointed in terms of profits. We also do not know whether tech spending will continue if the economy slows down."
Chappell is keen on certain stocks including Disney, which has recently bought the rights to hit UK quiz show Who Wants to be a Millionaire. He added that the show is also proving popular in the US, enabling Disney to profit via its ABC TV operation through increased advertising revenues.
Perpetual American Growth is ranked fourth out of 86 funds in the North America sector over three months on a bid to bid basis on growth of 20.3%. The £363m unit trust is ranked 48 out of 85 over one year offer to bid on growth of 11.4% and is 50 out of 78 over three years on growth of 69.6%, also on an offer to bid basis.
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